Income tax in India is governed by the Income Tax Act 1961 — one of the most complex pieces of legislation a CA will work with throughout their career. Before computing a single rupee of tax, you need to understand the foundational concepts: what is the previous year and assessment year, who is a person under the Act, what determines residential status, and how residential status decides the scope of what income is taxable in India. These basics are not just definitions to memorise — they are the engine that drives every subsequent computation. A missed concept here (confusing the residential status rule for an individual vs a company, for instance) cascades into completely wrong answers. India taxes its residents on their global income; non-residents only on India-sourced income. The difference between a senior citizen (age ≥ 60) and a super senior citizen (age ≥ 80) changes the basic exemption limit. These numbers are tested in every CA Intermediate examination.
Before You Start
🎯 Why learn this?
Every income tax computation starts with these basics — AY/PY, residential status, and scope of income. Get these wrong and the rest of the calculation is meaningless.
📚What you'll learn
- •Previous Year (PY) and Assessment Year (AY) — definitions and significance
- •"Person" under s.2(31) — the 7 categories
- •Residential status of individuals — ordinary resident, not ordinary resident, non-resident
- •Residential status of companies — domestic vs foreign
- •Scope of total income based on residential status
- •Basic exemption limits and tax slabs (New Regime and Old Regime)
✅ After this chapter, you can…
- ✓Determine the residential status of an individual from given facts
- ✓Apply the correct scope of income based on residential status
- ✓Identify the correct AY for a given PY
- ✓State the basic exemption limits under the new and old regimes
💼 Real problems this solves at work
- →Individual and corporate tax — determining taxability of global income
- →Expatriate taxation — status of foreign nationals working in India
- →NRI tax advisory — what income is and is not taxable in India
01Previous Year and Assessment Year
| Term | Definition | Example |
|---|---|---|
| Previous Year (PY) | Financial year (1 April – 31 March) in which income is earned. s.3. | PY 2024-25 = 1 April 2024 to 31 March 2025 |
| Assessment Year (AY) | Financial year immediately following the PY in which income is assessed and tax is paid. s.2(9). | AY 2025-26 = 1 April 2025 to 31 March 2026 |
Exam tip: Exception — income assessed in the SAME year as earned (s.172, 174, 174A, 175, 176): shipping business of non-residents, persons leaving India, AOP/BOI formed for a specific event, and persons likely to transfer . These are edge cases but occasionally appear in CA Intermediate MCQs.
02Person under s.2(31)
- 1.Individual
- 2.Hindu Undivided Family (HUF)
- 3.Company
- 4.Firm (including LLP)
- 5.Association of Persons (AOP) or Body of Individuals (BOI)
- 6.Local Authority
- 7.Every Artificial Juridical Person (e.g., universities, religious institutions)
03Residential Status of Individuals
An individual is RESIDENT if they satisfy either of these conditions in the relevant PY:
- Basic Condition 1: Stayed in India ≥ 182 days during the PY
- Basic Condition 2: Stayed in India ≥ 60 days during the PY AND ≥ 365 days in the preceding 4 years (60-day rule has exceptions — see below)
Exception to Basic Condition 2 — 60 days becomes 120/182 days for: (a) Indian citizen leaving India for employment or as crew of Indian ship — 182 days applies; (b) Indian citizen/PIO visiting India — 120 days applies if total income (excluding foreign income) exceeds ₹15 lakh; otherwise 182 days.
| Residential Status | Conditions |
|---|---|
| Resident and Ordinarily Resident (ROR) | Satisfies a basic condition + BOTH additional conditions: (i) Resident in India in ≥ 2 of 10 preceding PYs, AND (ii) Stayed ≥ 730 days in 7 preceding PYs |
| Resident but Not Ordinarily Resident (RNOR) | Satisfies a basic condition but fails one/both additional conditions |
| Non-Resident (NR) | Does not satisfy either basic condition |
04Scope of Total Income
| Source of Income | ROR | RNOR | NR |
|---|---|---|---|
| India-sourced income (received/accrued in India) | Taxable | Taxable | Taxable |
| Foreign income — from business controlled from India | Taxable | Taxable | Not taxable |
| Foreign income — from business NOT controlled from India | Taxable | Not taxable | Not taxable |
| Other foreign income (salary, rental earned abroad) | Taxable | Not taxable | Not taxable |
05Tax Slabs — New Regime (Default from AY 2024-25)
| Income Slab | Tax Rate (New Regime — s.115BAC) |
|---|---|
| Up to ₹3,00,000 | Nil |
| ₹3,00,001 – ₹7,00,000 | 5% |
| ₹7,00,001 – ₹10,00,000 | 10% |
| ₹10,00,001 – ₹12,00,000 | 15% |
| ₹12,00,001 – ₹15,00,000 | 20% |
| Above ₹15,00,000 | 30% |
Exam tip: Rebate u/s 87A: If total income ≤ ₹7,00,000 (new regime) or ≤ ₹5,00,000 (old regime), tax is NIL due to rebate. Add: Health and Education Cess 4% on tax + surcharge. Senior citizen (60–79): basic exemption ₹3 lakh (old regime). Super senior citizen (80+): ₹5 lakh (old regime).
Chapter Summary
- 1PY = year income is earned (April–March). AY = next year when income is assessed.
- 27 categories of "person": individual, HUF, company, firm, AOP/BOI, local authority, artificial juridical person.
- 3Residential status (individual): basic condition — 182 days OR 60+365 days. Additional conditions determine ROR vs RNOR.
- 4ROR: taxed on global income. RNOR: global excluding non-India-controlled foreign income. NR: India-sourced only.
- 5New regime default (AY 2024-25+): 0% up to ₹3L, 5% up to ₹7L, then graduated to 30% above ₹15L. Rebate 87A: nil tax if ≤ ₹7L.
Key Terms
Previous Year (PY)
Financial year (1 April–31 March) in which income is earned — always the year before the AY.
Assessment Year (AY)
Year following the PY; income of PY is assessed and tax is paid in AY.
ROR
Resident and Ordinarily Resident — taxed on global income.
RNOR
Resident but Not Ordinarily Resident — taxed on India income + India-controlled foreign business income.
Non-Resident
Taxed only on India-sourced income.
Basic Exemption Limit
Income below which no tax is payable: ₹2.5 lakh (old, below 60), ₹3 lakh (old, 60–79), ₹5 lakh (old, 80+), ₹3 lakh (new regime for all).
Rebate u/s 87A
Full rebate on tax if total income ≤ ₹7 lakh (new) or ₹5 lakh (old) — effective nil tax.